Legislature(1997 - 1998)
04/28/1998 01:35 PM Senate TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSHB 386(FIN) - RE AK INDUS. DEVELOP & EXPORT AUTHORITY
SENATOR GREEN moved to adopt SCSCSHB 386(TRA) as the working
document before the committee. There being no objection, the
motion carried.
LYDIA JONES, Senate Transportation Committee Aide, explained the
committee substitute as follows. HB 386 was introduced to extend
the life of the Alaska Industrial Development and Export Authority
(AIDEA) which is scheduled to sunset this year. The Senate
Transportation Committee substitute extends AIDEA's bonding
authority to July 1, 2000. A number of projects for which
legislative approval is requested are contained in the bill. Among
those are the Red Dog Mine and the port at the City of Nome. The
committee substitute added the issuance of bonds to finance the
improvement and modification of existing facilities at the
Anchorage International Airport in the amount of $179 million;
bonds in the amount of $70 million to finance the design and
construction of a port at Pt. MacKenzie to be owned by Authority;
issuance of bonds not to exceed $70 million to develop a railroad
right-of-way and utility corridor to gain northern access to Denali
National Park; issuance of bonds to finance improvement and
expansion of the port facilities at the City of Seward for $20
million; and bonds to finance the construction and improvement of
the Hatcher Pass Ski Resort, phase one, located in the Mat-Su
Borough, not to exceed $15 million; and Section 25 provides
detailed information about the right-of-way for the railroad and
utility corridor.
CHAIRMAN WARD asked about the expiration date.
MS. JONES answered the expiration date of AIDEA's bonding authority
was amended to the year 2000 because, while AIDEA has an excellent
track record with its projects, the Legislature would like to have
oversight of those projects and be informed of how they are
proceeding.
SENATOR LINCOLN asked Ms. Jones to expand on Section 25 in relation
to Kantishna Holdings, Inc.
MS. JONES noted that Mr. Joe Fields of Kantishna, Inc. was
participating via teleconference. She explained Kantishna, Inc. is
developing a project to gain northern access to Denali National
Park.
SENATOR LINCOLN asked Mr. Fields to describe the area referred to
in the bill and how vast that area is.
MR. FIELDS replied this land extends into Denali National Park to
the West of Healy. The description in the bill is a portion of the
townships in that area which contain the most likely final right-
of-way for the Denali railway system.
SENATOR LINCOLN asked Mr. Fields how many miles this area will
extend.
MR. FIELDS answered the area will extend, from the Alaska Railroad,
about 20 miles to the West, to the eastern boundary of Denali
National Park.
SENATOR LINCOLN asked who is involved in Kantishna Holdings, Inc.
MR. FIELDS replied Kantishna Holdings, Inc. is an Alaskan
corporation that has proposed the development of the Denali Railway
System. It currently holds an access permit across some of the
lands in this area, and it has made a petition to the Secretary of
the Interior for the balance of a right-of-way to the Kantishna-
Wonder Lake area.
SENATOR LINCOLN asked who the board members are.
MR. FIELDS stated the Kantishna Holdings, Inc. board is comprised
of Ken Murray, Jr. from Fairbanks, Lawrence Irving, Jack Williams,
and himself.
SENATOR LINCOLN asked if those four are the principal owners of
Kantishna Holdings, Inc.
MR. FIELDS said they are.
KEITH LAUFER, Financial and Legal Affairs Manager of AIDEA, made
the following comments. AIDEA supports HB 386, which will extend
AIDEA's funding authority and create new facilities and jobs and
help diversify Alaska's economy. AIDEA provided the committee with
a detailed sectional analysis of the Finance Committee version of
the bill. The bill contains four major components. The first
extends AIDEA's bonding authority, which would otherwise sunset
July 1, 1998. If AIDEA's authority was to sunset, AIDEA would be
prevented from issuing development bonds under $10 million and from
issuing conduit bonds. Bonds in the amount of over $10 million
always require legislative approval. Conduit bonds can be issued
without any credit implication to the state or to AIDEA but allow
for tax exempt financing of qualified projects. Again, AIDEA will
be required to get legislative authorization of projects over $10
million.
MR. LAUFER continued. The second major aspect of the bill is that
it merges AIDEA's export guarantee program and its business
assistance guarantee program. The ten year old export assistance
program has never been used. AIDEA commissioned a study to find
out why that was the case and found that while exporting businesses
are supported by other AIDEA programs, this program was not
effective because it was designed after other states' programs that
have strong manufacturing bases and it had some requirements that
did not work well. For example, it had a 25 percent value-added
component in Alaska which prevented the use of the program for
trans-shipment or other types of exports that are common. The bill
modifies the export program and merges it into the business
assistance program which has worked fairly well. The program will
cover services, not just manufacturing, and it covers distributors
and trading companies. It only requires export insurance at
AIDEA's discretion. Currently export insurance is required for all
transactions regardless of location.
MR. LAUFER explained the third aspect of the bill is the
confidentiality provision. AIDEA has no such provision right now.
AIDEA is subject to the general rules under the Public Records Act
which require AIDEA to release documents under the terms of the
Act. The default is that all records are public records; there is
no exception for records submitted by applicants such as tax
returns, business plans and the like. Instead, AIDEA must apply a
Supreme Court test that requires it to balance the public's right
to know versus the privacy interest of the applicant.
SENATOR GREEN asked where that language is contained in the bill.
MR. LAUFER stated it is in Section 8 of the bill. He stated the
current bill contains a provision that specifies categories of
documents, that if confidential when submitted to AIDEA, could be
kept confidential at the applicant's request. The Legislature and
the Legislative Budget and Audit Division would always have access
to all information. The last aspect of the bill pertains to
project authorizations. The Finance Committee's version of the
bill contained two project authorizations; one for an expansion and
modification of the port at the Red Dog Mine (the DeLong Mountain
Transportation System) to provide a direct float-out facility. At
present, Cominco Alaska uses barges to lighter concentrates out to
ocean going vessels. The proposed project would extend the
existing pier about one-half mile, and provide for dredging so that
ocean-going vessels could be directly loaded. The project is very
significant and will lower the costs of Cominco's operation thereby
making Cominco's operation more secure in the state's investment.
The project also has ancillary environmental benefits in that the
concentrate will not have to be handled as often. That project is
in a very preliminary stage. AIDEA believes the project to be a
very good one. AIDEA is concerned about its concentration of debt
in one particular project; AIDEA has over $200 million currently
invested in the facilities at the port. This additional $80
million is a significant portion of AIDEA's $1.3 billion in assets.
At present, AIDEA believes this project will be structured as a
revenue financing, non-recourse to the Authority, based solely on
Cominco's credit. That method will alleviate much of AIDEA's
concentration concern as well as the rating agencies' and bond
insurers' concerns.
MR. LAUFER informed committee members the second project included
in the House Finance Committee version of HB 386 is an expansion
and modification project for the port at the City of Nome which
provides for a new entrance channel to the harbor for safety and
other reasons. That $30 million project is in a preliminary stage.
It appears that $26 million could be funded through Army Corps of
Engineer funds, so a substantial portion of AIDEA's involvement in
this project would be short term. Again, there are a lot of due
diligence and statutory requirements AIDEA would have to meet
before it would invest in this project, but it looks promising at
this stage.
SENATOR HALFORD stated he believes the Legislature should have
access to most of the confidential information if it is to be
effective in its oversight capacity. He noted trade secrets and
income tax returns of individuals are far different than business
plans, credit reports, and other things the Legislature will need
to have.
MR. LAUFER responded AIDEA has been advised that the Legislature
will continue to have access to all information.
SENATOR HALFORD stated the Legislative Budget and Audit Division
will have such access, the Legislature will not. He stated
legislators who are willing to keep the information confidential
should have access.
CHAIRMAN WARD suggested Mr. LAUFER verify that the Legislature will
have access with the Attorney General's Office.
SENATOR LINCOLN asked for clarification about the additional amount
to be invested in the Red Dog Mine.
MR. LAUFER replied $80 million. The investment to date is about
$230 million.
SENATOR LINCOLN asked Mr. LAUFER if he had the opportunity to read
the Senate Transportation Committee substitute prior to the
meeting.
MR. LAUFER said he read it in the last few minutes.
SENATOR LINCOLN asked Mr. LAUFER if he had any comments he wanted
to share on the version.
MR. LAUFER stated he does not know what a lot of the projects are
about so it is difficult for him to comment on them. He noted that
typically, AIDEA has waited for projects to be further advanced
before it got project authorization, because when AIDEA goes out
into the bond financing market, that market treats all
authorizations as though the bonds will be issued. When they look
at AIDEA's finances, they will figure AIDEA will issue all of the
bonds regardless of the stage of the project which will cause some
difficulty.
CHAIRMAN WARD asked if AIDEA has a mechanism in place to ensure
that the public's interest is protected in the process.
MR. LAUFER replied AIDEA would have to meet a number of statutory
requirements before it could invest in any of these projects. He
clarified he was addressing the financing concerns AIDEA may
experience when it goes to the financing markets.
CHAIRMAN WARD said he would hope AIDEA would take a prudent man
rule and protect Alaska's interests.
ROGER HEAD, principal of the Hatcher Pass Development Corporation,
gave the following testimony in support of HB 386. The Hatcher
Pass development project has been seriously considered for about 15
years, and AIDEA has reviewed previous proposals for the project.
Both the Department of Natural Resources (DNR) and the Matanuska-
Susitna Borough have put a high priority on this project. The Mat-
Su Borough believes that in the near term, Hatcher Pass is one of
the major economic development projects available to the borough.
DNR believes this project is part of an overall winter and summer
tourism plan. Previous proposals for the Hatcher Pass project were
fairly grandiose in scale, and never reached fruition. DNR
requested a proposal for a new lease in 1994. The proposed
development that occurred as the result of that lease was a project
estimated to cost about $25 million. Hatcher Pass Development
Corporation, the Mat-Su Borough, and AIDEA reviewed the economic
feasibility of that particular project and concluded that although
the project offered great opportunities for both the state and the
Mat-Su Borough, its size was too large to be feasible. The lease
was sold about 1+ years ago to Davis Constructors. Davis
Constructors undertook a study to determine how the project could
be changed to meet the objective of the Mat-Su Borough and the
State, which was to create a four season resort. The project plan
was also pared down so that the first phase was financially
feasible. That work has been ongoing for the past year, and a
proposal was submitted to the National Bank of Alaska as the direct
contact to use AIDEA's guarantee for financing. At the beginning
of this year, NBA indicated that the debt-equity ratio of 90:10 did
not provide the security it required. NBA recommended a debt
equity ratio in the neighborhood of 25 to 30 percent. Since that
time, four milestones have occurred. The first is that DOTPF made
the Hatcher Pass road improvement project one of its highest
priorities after the Mat-Su Borough contributed some funds to that
project. That road is an integral part of the project's
infrastructure. The Matanuska-Susitna Electric Association found
a way to reduce the cost, from $2 million to $.5 million, for
providing electricity to the project by using an overhead line and
decided to participate and contribute to the project with its
development fund. Third, the Mat-Su Borough reached an agreement
with DNR whereby it will take over the lease property. The lease
funds will be injected by the Mat-Su Borough into the initial
development phase of the project. Fourth, DNR is planning to
privatize Independence Mine. The recent contributions are
narrowing the gap to where the Hatcher Pass Development Company
believes it is very close to meeting the ratio requirement. It
believes undertaking financing with AIDEA is logical. Ski areas
tend to be a little bit more difficult to finance than other
developments.
MR. KYLE RANDISH, Vice President of the Hatcher Pass Development
Company, described the project for committee members with the use
of charts. When Hatcher Pass Development Company bought out the
project, its goal was to down scale the project to make it
economically feasible. It is proposing a four-phase development
plan. The first phase will be the development of a ski area. The
second phase will include infrastructure development for the ski
area and to support the village. The third phase is the village
concept and the fourth phase will include more mountain
improvements. The ski area will have two detachable chair quad
lifts, a base facility, lighting on the mountain, and a snow making
system at the lower elevations. The goal of phase one is to
establish a skier experience equivalent to what is available in the
market in an economically feasible manner. The chair lifts are
state-of-the-art. During the second phase, power, gas, water, and
other developments will take place to accommodate the village
scheme. The village concept will be a four seasons resort
destination spot. The complex will offer some small hotels, small
retail stores, a convention center, a golf course, and some
residential development. As the village concept is developed, more
skier business should develop and the ski area size should
increase.
SENATOR WILKEN thanked Mr. Head and Randish for attending the
meeting.
PAUL FUHS, port consultant for the Port of Nome, described the Nome
port project through the use of illustrations. The existing port
was built in 1917 by the U.S. Army Corps of Engineers. The 75 foot
jetty is too small for the equipment coming in to the port.
Because of the Community Development Quota Program, the number of
fishing boats coming into Nome has increased. Over the last ten
years, ten people died trying to come in and out of the port
because of dangerous wave breaks in one spot. The causeway was
built during oil field development in Norton Sound, but was shut
down due to litigation. It contains cargo areas, but those areas
are exposed to rough weather. Nome is a trans-shipment port: it
serves 23 villages in the area. Senator Stevens and his staff met
with the U.S. Army Corps of Engineers and negotiated an 18 month
time frame to complete the project. A new breakwater and channel
entrance will be the main navigation features that improve the
safety and usability of the port. The Port of Nome prefers AIDEA
financing because if the Corps of Engineers and the federal
government do the procurement, it will take two years to get the
project out to bid. Using AIDEA (Section 204E) financing will save
an entire construction season. Also, if the federal government
finances the project, the project would have to be done in one bid.
By using AIDEA financing, the movement of the rock from Cape Nome,
dredging, and other projects, can be completed using local
contractors. With AIDEA financing, in the first year, 80 percent
will be paid back to AIDEA and the community will take the rest of
the debt ($5-6 million) as long term debt through AIDEA and pay
that off with port revenues.
SENATOR HALFORD asked if the Corps of Engineers has the money
appropriated to do the project.
MR. FUHS said that it does.
SENATOR HALFORD asked if the Corps of Engineers will pay AIDEA
back.
MR. FUHS said it will pay AIDEA back 80 percent of the money as
soon as it has certified that the project is complete. The project
is based on an 80-20 share; the local government has to come up
with 20 percent of the money. AIDEA will be reimbursed for roughly
$20 million in the first year when the project is complete, and $6
million will be financed long term.
SENATOR HALFORD asked how $20 million will amount to 80 percent of
the project's total cost of $30 million.
MR. FUHS said the total cost is estimated at $26 million but the
figure is not exact yet. The community might want to extend the
seawall to protect the front end of the spit. The dredged material
will be used to fill in the jetty to make it usable property.
SENATOR WILKEN asked about the purple area of the chart.
MR. FUHS explained the purple notations are the bathometric
markings which show the surveys of the elevations in the area to
ensure that the project will stand up to rough weather. The
community spent $550,000 on a feasibility study to which the
federal government contributed a like amount. $250,000 of that
amount was spent on modeling the port in a wave tank against the
conditions of the 1974 storm in Nome.
MR. FUHS stated the Community Development Quota Program contributed
$550,000 and the community put in the rest. The only state money
in the project is from a $200,000 community development block
grant.
SENATOR HALFORD asked what the tide level is in that area.
MR. FUHS stated the tide is only about a meter; two at the maximum,
but there is hold back from the storms because the area is so
shallow.
SENATOR WILKEN asked if the docking facilities will be upgraded.
MR. FUHS said they will in the small boat harbor area, however
those upgrades do not qualify for federal funding so they will be
financed with local money.
SENATOR HALFORD asked who owns the spit.
MR. FUHS replied it is owned by about 20 entities, among them the
city and the Native corporation. He added when this project got
started, he was hired as the acting city manager of Nome, and the
14C3 land reconveyance to the Native corporation was resolved.
SENATOR HALFORD commented this project will create a lot of high
value downtown beachfront property.
MR. FUHS agreed. He noted a gold seam runs through part of the
area where the Beema (ph) is working, and it contains arsenic. The
arsenic will be sealed into the bottom of the old channel so
technically one whole area will be a toxic waste dump with zero
value as far as the federal government is concerned.
CHARLOTTE Maccay, Senior Administrator of Environmental and
Regulatory Affairs for Cominco Alaska's Red Dog operation, stated
Cominco is asking the Legislature to approve the Red Dog portion of
the AIDEA funding bill which provides for further upgrade of the
DeLong Mountain transportation system port site by converting the
lightering barge load-out facility to an ocean vessel direct
loading facility. The direct loading facility will open the port
to other regional uses and other future resource extraction
projects in the region. It provides cleaner, and a reduced number
of, transfers of materials from port to vessel; it reduces marine
wildlife exposure to moving vessels; and it improves productivity
while greatly reducing shipping costs. Cominco has been successful
in bringing economic development to rural Alaska and with NANA
shareholder and Alaska hire. She noted she submitted detailed
written testimony to committee members and was available to answer
questions.
CHAIRMAN WARD thanked Ms. Maccay for the tremendous amount of
materials she supplied to the committee.
JOHN KEY, General Manager of Cominco Alaska, stated he was also
available to answer questions.
Committee members had no questions of Ms. Maccay and Mr. Key.
MIKE SCOTT, Manager of the Mat-Su Borough, stated his appreciation
to committee members for hearing HB 386 and for including the
Hatcher Pass and Point MacKenzie projects. The Hatcher Pass
development project has been in place for several years and is now
close to becoming reality. The Point MacKenzie project has been a
borough priority for many years. The Mat-Su Borough is the largest
area of the state without a port. At this point, some federal
funding for this project is working its way through Congress.
SENATOR HALFORD commented, regarding the confidentiality provision
in the bill, he believes some things should be on the list but
others should be a matter of public record. He believes income tax
statements, cash flow statements, and trade secrets should not be
a matter of public record, but financial statements, profit and
loss statements, credit records, appraisals, if part of the
collateral, marketing strategies, and market surveys should not be
kept confidential. He repeated the list is too expansive.
MR. LAUFER commented he was unable to get a representative from the
Attorney General's Office to attend. He stated the issue is the
separation of what the Legislature should have access to and what
information should be a matter of public record. AIDEA's
understanding was that any legislator would have access, providing
the information was kept in confidence. AIDEA would be in support
of amending the bill to clarify that provision. With respect to
the specific items mentioned by Senator Halford, one of AIDEA's
largest programs is its loan participation program in which AIDEA
buys bank participation. Under the laws that apply to banks, all
of that information is required by law to be kept confidential.
SENATOR HALFORD questioned how this system has been working for
years.
MR. LAUFER replied AIDEA gets requests regularly and goes through
the Supreme Court balancing test: the privacy interest versus the
public interest. Generally, no one is happy with the decision
AIDEA makes so it tried to create, in the bill, a list to give
people guidance as to what information would be public and what
would be confidential. The original bill allowed AIDEA to
promulgate regulations. Representative Therriault questioned why
AIDEA did not want to put a list in statute. AIDEA preferred
Representative Therriault's approach and the bill was amended. The
list is representative of the type of requests AIDEA receives and
where the problems have occurred related to those requests.
SENATOR GREEN asked if the bill could contain a stipulation
requiring any person who plans to get an AIDEA loan through a bank
to sign a waiver and comply with AIDEA's standards rather than the
bank's.
MR. LAUFER said certainly, and that has been the case up until now.
The problem has been that AIDEA gets requests from competitors for
information. AIDEA is not allowed, under current law, to inquire
as to motives or anything; the information is deemed public record.
AIDEA was hoping, through the legislative process, to get clearer
standards as to what information could be held in confidence.
AIDEA believes the list is representative of the kind of
information that is normally considered confidential. The bill
requires that the information be kept confidential before it is
submitted, and often many of the borrowers' financial statements
are already public at the time they are submitted. The bill would
not apply to any of that information.
SENATOR HALFORD stated, as an example, a high profile airline got
an AIDEA loan. The airline had a lot of property listed at certain
values and some of those properties had DEC problems. That
information was generally public. If this bill passes, that kind
of information would not be public. He believes the public has the
right to know the appraised value of the collateral.
MR. LAUFER responded the appraisal item is a particularly sensitive
one for banks because AIDEA has had cases where appraisals of
property were used by local assessors to reassess the property
value. The bill contains exceptions in the appraisal section
because AIDEA felt that certain appraisal information had to be
public, but the banks were hesitant to allow the entire appraisal
to be made public.
CHAIRMAN WARD asked if there was further testimony on SCSCSHB 386
(TRA) at this time and noted his intention to pass the bill out of
committee. There was no further testimony. CHAIRMAN WARD asked
Senator Halford to work with the AIDEA representatives to prepare
a committee substitute to be passed out of committee on Thursday.
SENATOR HALFORD questioned whether the Chairman would like him to
offer an amendment at this time.
CHAIRMAN WARD said he also wanted to work with the group to remove
some of the items that were included by the House Finance
Committee.
There being no further business to come before the committee,
CHAIRMAN WARD repeated his intention to move the committee
substitute out of committee on Thursday, and adjourned the meeting
at 4:17 p.m.
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